Competition watchdog says employee ownership schemes can balance competition and public interest goals.
South Africa’s Competition Commission has called for broader use of Employee Share Ownership Plans (ESOPs) in mergers and acquisitions, positioning them as a tool to deliver both competition outcomes and public interest benefits.
In a new report, “Employee Share Ownership Plans: An Analysis of Key Design Principles to Create Value for Beneficiaries and Firms,” the regulator outlines how ESOPs can mitigate the socio-economic impact of large transactions. The Commission frames ESOPs as a mechanism to promote broad-based ownership, support employment, and enhance firm resilience post-merger.
Drawing on past merger cases, the report finds that ESOPs can address both competition concerns and public interest considerations, particularly by widening ownership participation and aligning worker incentives with long-term company performance. In some approvals, firms were required to allocate 5–10% equity stakes to employees, with an emphasis on broad-based participation rather than narrowly targeted management schemes.
The Commission also highlights ESOPs as a policy instrument to advance ownership redistribution toward historically disadvantaged persons (HDPs) and to help cushion potential job losses following consolidation. At the same time, it acknowledges design and implementation challenges, including dilution of individual benefits, funding constraints, governance complexity, and the need to embed ESOP structures early in transaction design.
Importantly, the regulator stresses that ESOPs are not intended as a box-ticking exercise but as a flexible remedy evolving alongside merger control practice.
The Commission also recalls that in February 2019, the South Africa’s Competition Act was amended to address the structural challenges of high levels of concentration and the racially skewed spread of ownership of firms in the South African economy. In this regard, the public interest provisions in merger control were amended to explicitly create public interest grounds to address ownership, control and the support of small businesses and firms owned or controlled by historically disadvantaged persons (HDPs).
“Specifically, section 12(A)(3)(e) of the Act stipulates that when determining whether a merger can be justified on public interest grounds relating to ownership, the Commission or the Tribunal must consider whether the merger will have an effect on: “the promotion of a greater spread of ownership, in particular to increase the levels of ownership by historically disadvantaged persons and workers in firms in the market”,”
the report states.
